Currency in EUR
Last close As at 17/03/2023
EUR20.70
▲ −0.38 (−1.80%)
Market capitalisation
EUR949m
Research: TMT
Tinexta’s binding agreement to acquire an initial 20% stake in Defence Tech Holding (DTH) will provide a significant presence in a new client vertical (government/defence) for its Cyber Security business unit. DTH’s major assets include proprietary technology in an industry with a high security requirement, and ownership of authorisation centres to uphold Italy’s national security protocol, implying strong barriers to entry.
Tinexta |
Boosting presence in high-growth Cyber Security |
Acquisition of stake in Defence Tech Holding |
Professional services |
5 January 2023 |
Share price performance Business description
Analysts
Tinexta is a research client of Edison Investment Research Limited |
Tinexta’s binding agreement to acquire an initial 20% stake in Defence Tech Holding (DTH) will provide a significant presence in a new client vertical (government/defence) for its Cyber Security business unit. DTH’s major assets include proprietary technology in an industry with a high security requirement, and ownership of authorisation centres to uphold Italy’s national security protocol, implying strong barriers to entry.
Year end |
Revenue |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/20 |
269.0 |
58.4 |
0.85 |
0.26 |
27.1 |
1.1 |
12/21 |
301.5** |
70.4 |
1.02 |
0.30 |
22.5 |
1.3 |
12/22e |
365.3 |
67.4 |
0.88 |
0.29 |
26.1 |
1.3 |
12/23e |
408.2 |
83.7 |
1.09 |
0.29 |
21.1 |
1.2 |
12/24e |
455.8 |
98.9 |
1.31 |
0.36 |
17.5 |
1.6 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. **Pro forma for disposal of Credit Information & Management.
Tinexta has announced a binding agreement to acquire an initial 20% stake in DTH for c €25m (€4.9/share) in cash with expected completion in H123. Tinexta has the option to increase its stake by a further c 40% in FY24 at an agreed 12x FY23 adjusted EBITDA plus pro forma net debt, which would force a public takeover bid and lead to its stake increasing to 85% if successful (with a 15% minority held by management) and subsequent delisting of DTH’s shares, or exiting the investment. The transaction is notable as it is Tinexta’s first acquisition of a stake in a listed company. DTH was founded in 2010 and listed in October 2021.
DTH has three key operating companies with different expertise: Donexit (technologies and products to protect critical national infrastructure), Foramil (security infrastructure for the military and civil sectors) and Next (systems design and development for defence and space segments) with a domestic focus. The group’s main exposure is to government spending (79% of revenue in FY21).
DTH reports using Italian accounting standards and therefore its financial statements may not be directly comparable to Tinexta’s. Consensus (source: Refinitiv) currently estimates that DTH has a revenue CAGR of 20% in FY21–24 (€19m in FY21 to €33m in FY24) and an EBITDA CAGR of 25% (€6.7m in FY21 to €13m in FY24). The growth rate is similar to Tinexta’s guidance for its existing Cyber Security division (19% in FY21–24 from €73m in FY21). DTH’s estimated FY24 EBITDA margin (c 39%) is significantly higher than Cyber Security’s (we forecast c 19%) given DTH’s greater exposure to higher-margin ‘products’ than ‘services’. Tinexta’s management is confident that revenue synergies will enhance expected growth rates for both entities. DTH’s adjusted EBITDA margin improved significantly from 20.5% in FY20 to 37.0% in H122 as product revenue grew. Note that for our EBITDA margin calculation we use ‘revenue from sales and services’ and ‘other revenues and income’ as disclosed by DTH as the denominator (which is consistent with Refinitiv consensus) rather than value of production, as disclosed by the company, which includes changes in, eg working capital items. Following positive free cash generation of €0.5m in FY20, DTH generated negative free cash flow of €7m in the 18 months through H122 due to investment to support growth.
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Research: Healthcare
Basilea has announced the full repayment of the CHF113.8m outstanding amount under its 2.75% convertible bonds due on 23 December 2022, supported by growing cash inflows from marked drugs and the CHF75m senior secured loan raised in September 2022. The repayment reduces the company’s indebtedness from ~CHF287m to CHF173m and had been reflected in our estimates and valuation. FY22 has been characterised by Basilea’s efforts to right-size itself (focus on anti-infectives and sale of oncology assets) and the debt repayment should further improve investor sentiment. This news follows the recent announcement of licensing partner Asahi Kasei receiving marketing approval for Basilea’s flagship drug, Cresemba, in Japan, a key market for Basilea. Our valuation remains unchanged at CHF921.7m (CHF77.8/share).
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